The Changing Conception of Ownership vs. Renting

A wonderful article in the Wall Street Journal this week focused on changes in buying vs. renting as outgrowths of the American Dream and supported the position that the Obama Administration should turn to helping renters, rather than putting all of its money into revitalizing the housing market. The idea is an interesting one. Before the Great Depression, homeowners were either very wealthy or people who built the house themselves. The vast majority of Americans rented.

Now, home ownership has become synonymous with the American dream. A noteworthy quote mentioned in the article is, “‘A man is not a whole and complete man unless he owns a house and the ground it stands on.” – Walt Whitman. But this change was only completed as the federal government stepped in to dramatically assist and subsidize lenders with the creation of government programs such as the Home Owners Loan Corporation and the Federal Housing Administration. I would also argue that the change occurred partly due to class issues, as wartime and the Great Depression led to the ascendancy of the self-made man and decreased the emphasis on Old Money. Regardless, the change to a society that glorified home ownership was not made until the 1930s, and has still not occured in many European countries, where most rent.

It is true that the Obama Administration has spent a lot of money to try to help stimulate the housing market and keep homeowners that are behind on their mortgages in their homes. The aptly named “Save the Dream” fair in Atlanta this past weekend seems to aptly illustrate this idea that the dream of owning a home is a fleeting one. A report by the National Foundation for Credit Counseling in June found that 1/3 of Americans believe they will never be able to own a home, and 42% of those who owned a home in the past but do not own one currently believe they will never be able to own one again. This is hardly optimistic data for those seeking to restart the home ownership market.

In New York City (and I imagine in other urban areas as well), there are programs in which the government assists low-income families with finding apartments. I believe there are even cases when rents are subsidized, depending on the circumstance. Assisting landlords and tenants may be the best way to help combat the housing crisis. Landlords in default or distress can cause problems for tenants, who may find themselves evicted. In cities where property values are high, many renters can be stuck with rents that amount to more than half their salaries.

Helping renters will help individuals save money, perhaps leading them on the path to home ownership, while, in the meantime, improving their present situation. Although programs such as the reverse mortgage program and the HECM for Purchase program are wonderful ways to help homeowners, the point that renters should be attended to as well (and perhaps instead) of simply focusing on homeowners is a valid one that has been long overdue.

Mortgage Servicers Under Pressure to Modify More Loans

Representatives from many of the mortgage industry’s leading mortgage servicing companies met with members of the Obama administration in Washington on Tuesday. The meeting was called to discuss ways to improve the administration’s housing rescue plan and loan modification program. It was called in light of the fact that the program, while launched in February to great fanfare, has only completed trial modifications on over 200,000 loans so far. The administration’s goal remains 500,000 trial mortgage loan modifications by November 1st. In what is perhaps an effort to increase the pressure on mortgage servicers to modify more loans, the Obama administration also announced that it remained on track to release a report on the individual mortgage servicing companies by August 4th. The report will contain the number of trial modifications offered to eligible borrowers and the number of trial modifications currently under way.

Some seem to fear that adding additional pressures to the mortgage servicers will cause banks to take additional losses on the loans. However, it is commendable for the administration to push for the loan modifications–especially in a program that has had so many complaints over the past few months. I’d argue that while the losses taken by the banks will in aggregate certainly be larger than that taken by the homeowner whose loan was not modified and gets foreclosed upon, the significance of the foreclosure is greater for the homeowner than for the bank. Furthermore, it is perhaps easier for the administration to then aid the bank, rather than aid each of the millions of homeowners whose homes have been pushed towards the brink of foreclosure as a result of the economy-the people who this program was designed to help.

Obama Administration Considers Proposing a New Mortgage Regulator

: The Federal Reserve has been under fire for failing to do a better job regulating the mortgage market

The Wall Street Journal is reporting today that the Obama administration is in advanced level talks to create a new regulatory agency to oversee the mortgage industry, as well as other consumer-oriented financial products. It sounds like mortgages and reverse mortgages would both fall under its discretion. It appears likely that credit cards will not be included. The proposed changes come as the Federal Reserve continues to be under criticism for failing to regulate the mortgage market during the housing boom.

However, it seems dubious whether a new agency will really be able to accomplish anything beyond what the government has already been trying to do. Currently HUD and the FHA have been overseeing the mortgage and reverse mortgage market. These agencies are already under criticism for being too far removed from the market, and the time lapse and red tape in the drafting and interpretation of the McCaskill amendment potentially help signal the validity of these claims. Adding an additional agency will only further confuse the system and red line the structure. I question whether it could be more effective as a regulatory body given the landscape in Washington and the organizations that already exist.